Chile Monetary Policy January 2016

Chile: Central Bank holds rate in first meeting of the year

January 14, 2016

At its meeting on 14 January, the Central Bank of Chile (BCCH) decided to leave the policy rate unchanged at 3.50%. The decision followed last month’s 25-basis-point hike.

As for the international environment, the Bank highlighted financial market volatility sparked by turmoil in China as the main event since the last meeting. Conversely, in the Bank’s view, the much-anticipated rate hike by the U.S. Federal Reserves did not trigger significant disruptions in financial markets. The Bank added that the Chilean peso continued to depreciate and that the prices of copper and other commodities continued to fall.

Regarding Chile, the BCCH stated that in December the monthly variation in consumer prices fell slightly short of the Bank’s projection, but that inflation rose above 4.0%. Inflation expectations for the next two years stand at 3.0%, in line with the Bank’s target. The Bank expected subdued economic growth for Q4 2015 and stated that confidence indicators remained in negative territory. On a positive note, unemployment remained low.

In conclusion, the Bank stated that the monetary policy will remain focused on bringing inflation to the target. Moreover, the Bank emphasized, “its commitment to conduct monetary policy with flexibility, so that projected inflation stands at 3% over the policy horizon.”

Panelists participating in the LatinFocus Consensus Forecast see the policy rate at 3.82% at the end of 2016. Panelists expect the policy rate to end 2017 at 4.17%.

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